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Qatar faces worst decline in GCC real estate sector

Despite the region political risks, real estate ratings in the UAE have largely remained stable

Difficult economic environment is expected to weigh on the prospects of the real estate sector across the GCC, especially Qatar as it faces continuing trade and economic sanctions.

“We expect that difficult operating conditions in the region will continue to hurt the real estate sector for the next 12 months in the absence of positive triggers,” said Sapna Jagtiani, an analyst at S&P.

Qatar’s real estate market is suffering as a result of the blockade by its neighbours. The country experienced a decline in its population in June-August, according to Qatar’s Ministry of Development Planning and Statistics, but saw a recovery in September to the same levels as before the blockade.

Incentives, such as rent-free periods, have become more common, while quoted rents for vacant units have fallen in recent months. According to DTZ, residential rental rates in Qatar declined 10 per cent to 20 per cent year over year to September.

The severing of trade and transport ties has led to a fall in tourist and business travellers to Qatar. “A weakness in general sentiment has also prevailed over retailers as consumer spending has dropped and may further decline as a result of lower tourist arrivals, especially from Saudi Arabia. Therefore, we expect all real estate segments in Qatar to get hit,” said Jagtiani.

Supply coming to the market

Despite the region political risks, real estate ratings in the UAE have largely remained stable. UAE residential property prices and rents have declined by 5 per cent to 10 per cent during the year.

In Dubai, the biggest threat continues to be potential supply coming to market in the next two to three years, which would likely not only soften sale prices but also dampen rental yields. But this hardly affects rated developers such as Emaar Properties PJSC and Damac Real Estate Development Ltd, given current strong margins and low leverage.

The retail segment in Dubai also continues to see downward pressure on rents spurred by new supply and the growing threat from e-commerce. While GCC online sales account for only a fraction of total sales, e-commerce penetration has increased. Online retailing in the GCC is forecast to grow to $20 billion (Dh73.4 billion) by 2020 from $5.3 billion in 2015, according to A.T. Kearney.